Book publishers should be wary of Amazon's subscription plans

What if a $79 (£49)/year subscription to Amazon Prime didn't
just buy you faster shipping for hardcovers and small appliances,
and free streaming for old movies and TV shows? What if it also let
you read entire books from a similarly curated back catalog?

Amazon has told publishers it is considering creating a
digital-book library featuring older titles…Amazon would offer book
publishers a substantial fee for participating in the program,
people familiar with the proposal said. Some of these people said
that Amazon would limit the amount of books that Amazon Prime
customers could read for free every month.

Before Prime members (disclosure: that's me) start gleefully
rubbing their hands together, note that the publishers haven't
signed on. In fact, their executives are deeply skeptical. (Amazon
wouldn't comment on the story, for either the Journal or Wired)

"What it would do is downgrade the value of the book business,"
said one publishing executive.

Let me translate that for you: We have no idea how to price
this, and that makes us afraid.

Now much of the time, book publishers, like most other
well-established media companies, are afraid to experiment with
digital delivery for no real reason, for boring reasons, or out of
simple inertia. Here, though, skepticism and even fear is totally
understandable. Arguably, it even demonstrates good business
sense.

The Journal called Amazon's proposal "a Netflix Inc.-like
service for digital books." Now, "Netflix for ____" has become a
cliché, but if we take the metaphor seriously, we can understand
why no book publisher wants to be Starz.

Let's assume that Amazon convinced one or more major publishers,
or a handful of mid-level ones, to sign on with this plan. One of
two things could happen:

1. The service doesn't get traction with customers, for whatever
reason -- bad implementation, the catalog is too small/big or
poor-quality, readers would rather own than rent -- and it crashes
and burns. The publisher just went through a ton of work to pore
over its giant catalogs, digitize more back content, figure out
author compensation for this weird new thing. And now they look
like idiots.

2. The service is a smash hit. A big free catalog of books helps
Amazon sell its next generation of tablets and e-readers faster
than Foxconn can make them. Book clubs are binging on your back
catalog and your content has more visibility and relevance than
ever.A year into the deal, Random House CEO Markus Dohle (or
whoever) is on stage with Amazon CEO Jeff Bezos. They clasp hands,
and raise them over their heads to thunderous applause. As Dohle's
smile widens and flashbulbs pop, only one thought is on his mind,
which he fights to keep off his lips: "I should have asked for a
lot more money."

To this, let's add the following complications:

• Amazon already has more power over
every aspect of the book publishing business than Apple ever had
with music or Netflix has now with anyone. Publishers are naturally
wary of doing anything that ties their business more closely to
Amazon's and further alienates or marginalises their
competitors.

• Book publishing is infinitely more
fragmented and conflicted than any other media industry. It's
bigger than you probably think -- in 2010, 1,963 publishers generated net revenue of $27.9
billion -- and it's growing, both in revenue and number of
books sold. But it's all over the map. Textbooks and genre fiction
don't have a whole lot to do with each other. Neither do giant
megacorporations and vital little indies. Within each of these
markets, authors, editors, agents, publishers, boards, large
purchasers like libraries and school districts, retailers and
reviewers all have substantial power, creating layers of competing
but intricately connected interests that each need to be satisfied.
This creates are all sorts of coordination and marketing problems
that tend to thwart omnibus solutions.

• Books don't have the same kind of
problems with shelf life (har har har) that plague movies, music
and television. A substantial chunk of the book business is and has
always been in classics and "steady sellers." These in turn are
periodically refreshed with new editions and translations.

• Partly because of this, apart from
used bookstores, with which publishers have never really dealt
directly, an aftermarket for older books comparable to TV
syndication or movie sales to premium or basic cable has never
really developed. It was comparatively easy for Netflix's (or
Amazon's) TV and movie partners to sign a deal, because it wasn't
much different from an agreement they might sign with someone else.
Book publishers don't have a comparable comparable.

Amazon

But both publishers and retailers would prefer that their back
catalogs would develop a viable aftermarket. Digital delivery seems
like the best route -- no more storing books that aren't selling,
no more assets that go out of print -- and Netflix among others
have proven that a subscription model can be a very compelling
discovery and revenue-creating tool for this class of content.
Amazon has the added benefit of using its Prime service to create
extremely compelling pricing for consumers: free.

Once you have it, you will use it; once you use it, you will
wonder how you lived without it. And if you subscribe to Prime
expressly for the digital book catalog, you may find yourself
buying more e-books for your Kindle/tablet and even availing
yourself of two-day delivery to pick up a few more hardcovers and
small appliances -- from Amazon, of course.

This, of course, is why Google, not university presses or
publishers or libraries alone, has invested in digitising older
content. Without a clear market strategy for those books, it isn't
worthwhile for anyone else to transform them from print to digital.
And so far, only
Google has really had one. The print book market may live on
the long tail; for e-books, that tail is a lot thinner, and the
curve is much more steep.

Amazon, though, knows how to grow that tail. It knows exactly
how many customers search for an older, obscure book and click "I
would like to read this book on Kindle." It knows how many of those
customers in turn are sent off to affiliates selling used copies.
It knows how many cheap self-published books or repackaged
public-domain classics are downloaded onto its devices. It knows
how much more value publishers' back catalogs could offer than any
of those sources.

In order to capture that value, it's willing to put a lot on the
table; a fat up-front fee to participating publishers, capping or
throttling the total number of book downloads (to prevent piracy, I
guess, or to randomly irritate its most high-volume customers into
buying more books outright), plus whatever else book publishers
need to feel assured that this won't burn their existing business
models down.

September 15th is the date Judge
Chin has decreed there must be a Google Book Search settlement.

So Amazon probably went to
publishers and said, "You already agreed to letting Google steal
your backlist, why not at least let us give you a few pennies for
it?"

I foresee three things coming from this:

1. Whether they buy into Amazon's proposal or not, publishers
will be spurred to take a harder look at their existing catalogs
and figure out how they can make them available digitally. This
could be through sales or subscription, through Amazon or some
other portal.

2. Whether it can convince major publishers on the right price
or not, Amazon will find some way to make inexpensive, high-quality
reading content available for free to every Amazon Prime subscriber
and everyone who buys one of its new tablets. This, plus the video
catalog, will become one of the major selling points of the device
and differentiate it from Apple, Google or Barnes & Noble. 3.
We will all be forced to endure so many hackneyed "Netflix for
books? I thought that was called the library!" jokes that it will
make our brains melt and our eyes bleed.

I've been using a "Netflix for
books" -- aka the library -- since grade school. They had a cool
recommendation system -- with human interface!

Just after the WSJ published their story last night, I'd already
seen enough variations on this theme that I
wrote: "Yes, libraries also let you subscribe to books. All
hundred thousand of you are each clever in your own way, like
snowflakes… Or like unhappy families. What do I really know about
your inner lives?"

So far, though, neither libraries nor Google nor anyone else
have managed to pull off 24/7 delivery of a gigantic category of
digital books to nearly every device the way that Amazon has for
e-book purchase or Netflix has for subscription video. If they
could, we wouldn't be having this conversation. Neither would
Amazon and book publishers be having theirs.